Study finds petchem cash margins out of sync with capex decisions

Petrochemical ProspectsRecent research confirms no correlation exists between cash margins and decisions of a large chemical producer to invest in a new plant; specific corporate priorities rather than a "trigger" point mechanism determine the timing.A popular theory, often asserted by chemical consultants, assumes that a decision to build a new commodity chemical plant is triggered when cash profit margins reach a so-called "reinvestment economics level."Corporate management and boards theoretically spring into action once returns exceed the cost-of-capital benchmark. Everyone must be watching for that moment, therefore, that will signal the beginning of a new investment cycle.The theory...

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